10 March 2013

Chairperson: Mr E Sogoni (ANC)

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Meeting Summary

The Department of Human Settlements (DHS) gave presentations on the readiness of this Department to administer grants allocations for the 2013/14 financial year. The Committee was briefed on the 2013 Medium Term Expenditure Framework Allocations (MTEF) that covered the Human Settlements Development Grant (HSDG), the Urban Settlements Development Grant (USDG) and the Rural Households Infrastructure Grant (RHIG). Gauteng was getting a fairly large share of the allocations but specific towns in some of the provinces were getting priority under the National Priority Programme Allocations. Various challenges had been identified in the implementation of the grants, such as delays in planning of supply chain management, a lack of technical capacity at provinces and municipalities, lack of coordination and alignment experienced within metros and lengthy procurement processes. The DHS had devised intervention measures, like quarterly oversight visits with all Councils, monthly expenditure analysis and quarterly feedback to individual metros, approval of business plans submitted by municipalities, preparation of payment schedules for the transfer of grants to municipalities. Full details of the allocations, including provincial comparisons, spending and particular challenges for each of the grants, were given.

The Financial and Fiscal Commission (FFC) gave a presentation on the readiness of Metros to implement HSDG and USDG, and the integrated plans for implementation of RHIG. The FFC was not convinced that Metros were ready for level 3 accreditation – which was transfer of the full functions. There had been continued under spending of the grants, as illustrated during the comparative figures given by the FFC, and the RHIG in particular had not performed well from its inception. The FFC recommended a review of its design, the introduction of termination clauses in contracts as well as monitoring and evaluation.

The Committee was very concerned to hear that NT had proposed the restructuring of the RHIG, which was initially conceptualised as a Schedule 7 grant (since renamed as a schedule 6B grant) to a schedule 5 grant. This Committee had previously raised many questions around the grant, and its performance, and so it was concerned to hear that the Directors General of DHS and NT had not met, as instructed by the Committee, to deal with the questions raised, but instead the proposals were now made for the restructuring without referring back to the Committee first. NT explained that it had taken advantage of a window of opportunity, and both NT and DHS said that although they had met, the meeting was on the broader concerns around sanitation, rather than the specifics as raised by the Committee. The Chairperson of the Portfolio Committee on Human Settlements noted that essentially the DHS had been placed in a difficult position as the sanitation function and the RHIG grant had been “dumped” on that department before it had been able to prepare itself properly, but she too was concerned that the failure to report back was undermining Parliament. Members also questioned the status of the accreditation of municipalities, under spending of grants and the suspicion of fiscal dumping that took place while RHIG was a schedule 6 grant, and the capacity of municipalities to implement the funds received from the grants. After debate into the implications, the Committee agreed that the time was very short to allow for more engagement on the issue. They decided that the Division of Revenue Bill would be passed in its current form, leaving the RHIG where it was for the moment, as a Schedule 6B grant. In July, the DHS and NT would be invited to a meeting to give an update on the accreditation. The Committee would also continue to monitor the implementation of the grants.

Ms Funani Matlatsi, Chief Financial Officer, Department of Human Settlements, took the Committee through the presentation. She said that the grant allocations for the 2013/14 financial year were governed by several pieces of legislation such as the Constitution of the Republic of South Africa, 1996, the Housing Act, 1997, the Housing Consumer Protection Measures Act, 1998, the Housing Development Agency Act, 2008; Public Finance Management Act, 1999; the Social Housing Act, 2008; the Division of Revenue Act, 2012; the Rental Housing Act, 1999; and the Home Loan and Mortgage Disclosure Act, 2000.

The 2013 Medium Term Expenditure Framework (MTEF) allocations covered various programmes of the DHS, which she outlined. The amount of R27,38 billion was allocated to Housing Development Finance, which included the Human Settlements Development Grant (HSDG), Urban Settlement Development Grant (USDG), Rural Households Infrastructure Development Grant (RHIG) and departmental agencies for the year 2013/14.Out of this total the Human Settlements Development Grant was allocated R16.98 billion, which was an indication of emphasis in this area.

Ms Matlatsi said that the goal of the Human Settlements Development Grant (HSDG) was the creation of sustainable human settlements that would enable an improved quality of households. She set out the provincial allocations of the grant. The total allocation was R16,98 billion and out of that Gauteng Province had been allocated R4.108 billion, Kwazulu-Natal at R3.235 billion and Eastern Cape R2.523 billion, whilst the other provinces were allocated less than R2 billion.

Speaking on the National Priority Programme Allocations, Ms Matlatsi said that specific towns in some of the provinces were getting priority. For instance, in the Eastern Cape, priority was on Duncan Village and in Gauteng priority was on the towns of Lufhereng, Diepsloot, Sweetwaters and Khutsong. In Kwazulu-Natal priority was on Cornubia and in Limpopo, the town of Lephalale, while in the province of Western Cape the priority was on Drommedaris.

The HSDG allocations to Metropolitan Councils amounted to R4 855 184 000 for the 2013/14 Financial Year and the Metros of Nelson Mandela, Ekurhuleni, Johannesburg, Tshwane, eThekwini and Cape Town were part of the allocation.

With regard to the Provincial Business Plan Programme Allocations, it was noted by Mr Chainee that the provinces of Free State, North West and Western Cape were to implement the Finance Linked Individual Subsidy Programme (FLISP). R239 million was to be spent on this in provinces and there would be 2 500 beneficiaries. DHS planned to spend R686 million in all provinces for the 2013/14 Financial Year on the Rectification Programme. R93 million would be spent on accreditation support to municipalities in provinces, with the exception of Gauteng and Western Cape.

Continuing on the Provincial Business Plan Programme Allocations, Mr Chainee said that DHS would be unblocking projects in Eastern Cape, Free State and North West. In terms of Land parcels, provinces were to procure land to the value of R278 million. The targets for Rental and Social Housing noted that provinces planned to deliver 7 552 units, amounting to R1.6 billion.

Mr Chainee said that the Incremental Housing Programmes included informal settlements upgrading, and that provinces planned to deliver 86 027 housing units and 60 922 serviced sites, valued at R8.6 billion. He added that the Rural Housing Programme had been allocated R2.7 billion by the Eastern Cape, Gauteng, Kwazulu-Natal, Lampoon, Mpumalanga, Northern Cape and North West.

Speaking on the current challenges which could impact on the readiness of the provinces to spend the grants, Mr Chainee said that there was a lack of bulk and infrastructure and related funding to implement projects, delays in the planning of supply chain management, a lack of technical capacity at provinces and municipalities, poor alignment, cooperation and coordination of strategic objectives and programmes of provinces, municipalities and Entities, inadequate medium and long term planning for programmes and projects, and deficiencies in data management and integrity.

He however said that a number of interventions had been undertaken to address the challenges such as requiring provinces to align all grants to ensure bulk infrastructure was in place before implementation of programmes and projects. They were required to develop and align programmes and procurement plans, conduct feasibility studies to ensure programme and project readiness, establish and prioritise Programme Management Units, and make use of the Housing Subsidy System to administer and report on all human settlement delivery programme and processes.

Mr Chainee added that the Department had also undertaken several programmes. For instance, Provincial Business Plans for 2013/14 had been received and analysed by the DHS and 2013/14 Allocation letters had been sent to the provinces to allow for programme and project planning. The 3rd Quarter Mid Term Reviews had been conducted from 28 February to 1 March with provinces and Councils on performance, spending and planning for the 2013/14 Financial Year. He added that the DHS had also commented on the 2013 Division of Revenue Bill, including Grant Frameworks.

Ms Matlatsi outlined that the purpose of the Urban Settlements Development Grant (USDG) was to improve the efficiency and coordination of investments in the built environment, by providing large municipalities with appropriate resources and control over the selection and pursuit of investment programmes in the built environment. He added that USDG was an instrument for the Metropolitan Council to address linkages between public housing and economic growth simultaneously and to contribute to Human Settlements Outcomes.

In terms of the objectives, Ms Matlatsi said the USDG intended to integrate the release of well-located land with planning and funding of the built environment, to encourage cities to be proactive developers of infrastructure on well-located land through mobilisation of domestic capital, and to compel improvements in development planning as well as improve inter-governmental co-ordination of development.

Ms Matlatsi said that the total grant for the 2013/14 Financial Year was R9.07 billion. The Province of Gauteng, with its metros of Ekurhuleni, Johannesburg and Tshwane, had been allocated R4.36 billion out of the total grant.

Mr Chainee said that the USDG faced a number of challenges such as; lack of coordination and alignment experienced within Metros, that caused poor service delivery coordination, lack of capacity to carry out programme plans, critical vacancies and inconsistency of personnel managing the grant. There were also land acquisition challenges and limited land in close proximity to the city centre. He added that multi-year projects were budgeted for in one financial year, due to inadequate planning of projects and that there were lengthy procurement processes. On the legal front, tenders for major projects were being contested in court.

DHS had tried to bring about improvement of the alignment and coordination in implementation of the grant, was addressing the capacity constraints through the Cities Support Programme that was established by the National Treasury, was encouraging Metropolitan municipalities to appoint officials on a full time basis and improving the land acquisition management with the assistance of the Housing Development Agency. The DHS, when conducting the project readiness exercise would include attaching a list of projects as an addendum to the Performance Matrix. Councils were urged to develop programme plans aligned to procurement plans.

Mr Chainee said that the DHS had a support process in place to address some of the challenges faced. These included the development and presentation of a turnaround strategy to improve spending for the Councils and this would be presented to various government entities, including the Portfolio Committee on Human Settlements. A Performance Matrix had been developed to address human settlement related issues. Consultation with the National Treasury had been done to incorporate the matrix in the Service Delivery Business and Implementation Plan reporting template, so as to have one single template. Support would also be provided, through the National City Support Programme, to the Metros with capacity constraints.

Mr Chainee said that the DHS had a system in place for monitoring the implementation of the USDG and this included quarterly oversight visits planned with all Councils to monitor progress and to address challenges. It would be conducting quarterly reviews with Metros, giving monthly expenditure analysis and quarterly feedback to individual Metros, as well as providing regular reviews and programme and policy support with sector department to Councils (in line with the City Budget Forum, Outcome 9, and the National Upgrade Support Programme and accreditation.)

Mr Johan Wallis, Acting Deputy Director-General: Service Delivery Support, DHS, presented on the Rural Households Infrastructure Grant (RHIG), saying that its purpose was to provide capital funding for the reduction of rural water and sanitation backlogs and to target existing households where bulk dependent services were not available. He added that the grant was initiated as a schedule 7 grant in the 2010/11 financial year, and that it amounted to R1,2 billion. The grant had allowed for 50 065 households to be served with basic sanitation since its inception in 2010.

Mr Wallis said that the schedule of the grant had since then changed from schedule 7 to schedule 5b, with effect from 2013/14, and that it would be implemented by municipalities with the support of DHS. He said that the grant allocation for the next three years was R106 million for the period 2013/14; R113 million for the period 2014/15; and R118 million for the period 2015/16.

Mr Wallis gave a breakdown of the RHIG allocation per municipality for the 2013/14 Financial Year (se attached presentation for full details), and said that the grant allocations would be varied in the periods 2014/15 and 2015/16, with some being increased while others would be decreased.

Mr Wallis said that the DHS would support municipalities by approving the business plans that they submitted to the DHS, and continuously monitoring implementation and providing them with support. They, via DHS, would be submitting monthly financial and quarterly non-financial reports to the National Treasury and DHS would be submitting an annual evaluation report after the end of the financial year. It would prepare a payment schedule for the transfer of the grant to the municipalities. He added that the DHS was in the process of filling vacant posts at regional offices in order to provide support, and that monitoring and reporting processes, together with schedules, were being developed to report on financial and non-financial progress.

Readiness of Metros to implement HSDG and USDG and integrated plan for implementation of RHIG: Financial and Fiscal Commission briefingMr Bongani Khumalo, Acting Chairperson/Chief Executive Officer, Financial and Fiscal Commission, and Ms Sasha Peters, Senior Researcher: Local Government, Financial and Fiscal Commission (FFC) outlined the current funding and grant presentation to the Committee.

Ms Peters said that the delivery of human settlements and its related infrastructure from the fiscus was mainly funded through the HSDG, USDG and RHIG. RHIG was introduced in 2010 specifically to reduce high water and sanitation backlog in rural areas recognising topographical challenges and to achieve government objectives for universal access by 2014. This had happened after the water and sanitation function was shifted from the Department of Water Affairs to the DHS. The FFC was never formally consulted for its inputs when this decision was taken.

Speaking specifically on HSDG, Ms Peters said that the grant did not address issues beyond housing, which was in itself a weak link with other relevant infrastructure grants. There were currently a number of different sectoral and other infrastructure grants which were meant to contribute to the overall sustainable and liveable human settlements concept, but that these were not linked to the HSDG. She cited the integrated national electrification programme, neighbourhood development partnership grant and regional bulk infrastructure grant as examples.

Ms Peters said that the fact that the HSDG was disbursed through provinces also presented a challenge as there had been delays in the flow of funding to municipalities. Because of these delays in the actual transfer of funds from provinces, some municipalities found themselves having to borrow to bridging finance at a cost. She added that there had been under-spending of the grant by some provinces as a result of the challenges. In some cases, in an attempt to improve performance, funding had been taken away from under-spending provinces and re-allocated to provinces that were performing well. For instance, according to the DHS Annual Report 2012, some funds from the HSDG were relocated from Free State and Kwazulu-Natal to Eastern Cape, Limpopo and Northern Cape in the 2011/12 Financial Year.

FFC made a number of recommendations to address the challenges. These recommendations included acceleration of accreditation where capacity existed, and alignment of the grant with other human settlements infrastructure grants such as the Municipal Infrastructure Grant for new housing development projects.

In terms of the readiness to administer HSDG and accreditation by metros, Ms Peters said that FFC’s research in 2007 on institutional bottlenecks in the delivery of housing had found that the majority of the Metropolitan municipalities were already undertaking housing functions that ought to have been taken by Level 2 accredited municipalities. Some Metros had improved their capacity, including human resources, in anticipation of accreditation. It was also found that some metros, like City of Cape Town and eThekwini, were currently successfully managing housing projects on behalf of provinces.

Ms Peters said that FFC was certain that metros had capacity and were ready for Level 2 accreditation, but that from consultations with the DHS and a report that had been provided, FFC was not very certain that metros were ready for Level 3 accreditation or the full housing function shift. She added that consultations with the DHS were still on-going in this area.

Ms Peters moved on to discuss the USDG, which was introduced in 2011/12 for eight metros but that during its first financial year, it performed very poorly. Only Nelson Mandela and eThekwini had managed to spend more than 50% of allocated funds by 31 March 2012. The rest had spent below 50%, with Buffalo City spending only 19% and City of Cape Town 35%.

USDG continued to under-perform in the 2012/13 Financial Year, with overall spending remaining at 45% of the total available funds by the end of January 2013. There was a slight improvement compared to the 2011/12 financial year, where spending by end of March 2012 was 44% of the total available funds. She remarked that under spending was still a possibility, as 55% of allocated funds were unlikely to be spent within the remaining five months.

Ms Peters said that the FFC took the view that it was common for a newly introduced grant to perform poorly, as recipients would need time to get used to it. Once challenges within the USDG, such as procurement and project management inefficiencies that resulted in the slow progress in the implementation of capital projects, and poor planning processes, together with difficulties in monitoring due to non-breakdown by projects and project description, were addressed, the performance was hoped to improve.

The Rural Household Infrastructure Grant (RHIG) had not been performing well since inception. In 2010/11 R100 million was allocated and only R66,7, or 66.7%, was spent, and of this only 11% was spent up to February 2011. The March 2011 expenditure of R52 million could possibly be fiscal dumping.

In the 2011/12 Financial Year, the total adjusted allocation amounted to R258 million and the actual expenditure amounted to R187 million, or 72.8%. Only 31% had been spent by February 2012. Again, by 31 March 2012, expenditure rose sharply to 72.8%, and this again could possibly be fiscal dumping. She added that the total allocation for the 2012/13 Financial Year amounted to R479.5 million but this was later reduced to R340.6 million, at the request of the DHS. By January 2013 the total expenditure amounted to R61 million, which was 17.9% of reduced funding.

Ms Peters said that it was clear that there were serious problems in the implementation of water and sanitation programmes in rural areas and that FFC had raised concerns on the performance of the grant in the past. In conclusion, she noted that FFC had made a number of recommendations to so that it was made flexible. Wherever possible and cost-effective, priority should be given to repair and maintenance. Termination clauses should be included in all contracts to manage poor performance and there was a need for monitoring and evaluation of RHIG through strengthened capacity. She added that FFC was informally aware of a proposed integrated implementation plan for RHIG, but it was not in a position to comment until it had seen the plan.

Discussion:The Chairperson remarking on the RHIG said that instead of DHS getting back to the Committee with a report on how the grant was going to be implemented, it had decided to transfer it directly to the municipalities. The Committee had specifically been all along been waiting for a report from the Director-General of DHS and the Director-General of the National Treasury on the expenditure because the RHIG was not really being spent. The Chairperson asked Mr Zulu, Director General of DHS, to explain what had happened.

Mr Zulu responded said that the meeting between DHS and National Treasury (NT) Director-Generals took place, as had been instructed by the Committee, and amongst other issues they had debated the RHIG and concluded that there was a need to bring on board other related and linked departments such as Water Affairs. For this reason it was decided to call a further meeting at which recommendations could be made and a plan drawn. It was still pending.

The Chairperson insisted that the Committee now required the DHS to sit together with the NT to work out a plan for the implementation of the RHIG and then revert back to the Committee, with that plan, before the restructuring. He stressed that at this stage no restructuring was expected; the parties must simply work out a plan on how the grant could be made to perform better than it was currently doing. Initially there were excuses that the mandate for the grant had been received late, but now a year had passed, and there was no improvement.

Ms B Dambuza (ANC – Chairperson, Portfolio Committee on Human Settlements) noted that sanitation had been transferred to DHS by a proclamation of the President, and it, together with the RHIG mandate, were essentially “dumped” on the DHS. DHS did not have the institutional mechanism to run the grant. DHS had to start from scratch in building that mechanism to manage the grant. The Portfolio Committee on Human Settlements had been of the opinion, at the time, that the Independent Development Trust (IDT) and Mvula Trust had no capacity to implement the grant, and no one could explain the actual design of the grant that was considered problematic. Finally, the Committee had asked National Treasury to go and work on a plan for the RHIG and then report back. It was indeed surprising, and she asked why National Treasury went ahead and restructured the grant without reporting back to Parliament. She was concerned that this was undermining and disrespecting Parliament.

Ms Dambuza asked if funds for sanitation had been ring-fenced.

The Chairperson reminded the Committee that RHIG was only one component of the Division of Revenue so Committee Members were not confined to discussing the RHIG component.

Ms L Yengeni (ANC) said that the NT must respond to the questions on the restructuring of the grant without consulting Parliament.

The National Treasury representative responded that there was only one window of opportunity to table legislation that would support the expenditure. NT had tried to bring the restructured grant to the Committee, as an immediate measure to try to improve its delivery. The shifting to schedule 5b was a proposal that was subject to the approval of the Division of Revenue Bill by Parliament.

Ms Dambuza reiterated that the Committee had given National Treasury a mandate but NT had not reported back, and she did not understand the reference to a “proposal” now that the Division of Revenue Bill was before Parliament. She proposed that an urgent joint meeting of the Portfolio Committee on Human Settlements and the Standing Committee on Appropriations be held, at which both DHS and NT Directors General should clarify the restructuring.

The Chairperson said that the Division of Revenue Bill was to be passed on Thursday 14 March 2013 but that Parliament did not want to pass something that it did not know.

Ms Yengeni said that the Committee had no time. She was critical of the disrespect shown by NT, and said that at the first meeting when the Committee had expressed its reservations about the location of the grant, it was obvious that the NT was not happy. As a result, the Committee forced the NT and DHS to meet and then report back to the Committee, but now it was clear that this did not happen. Despite the initial proposals of NT being rejected, nobody had bothered to let the Chairpersons of either committee know. She agreed that Parliament could not pass something that it did not agree with.

Mr L Ramatlakane (COPE) said that just days before the debate of the Bill, the Committee had plunged into the middle of a discussion where there did not seem to be general agreement. He wondered how the Committee would be able to mediate between the two, and he doubted that this Committee had the capacity to do this. There were other outstanding matters for the Portfolio Committee on Human Settlements to resolve, that could not be settled in the Appropriations Committee meeting. He wondered if there was time for NT and DHS to meet as requested last year.

The Chairperson said that Parliament could still amend the Division of Revenue Bill if it wanted, but this would happen on Thursday.

Mr M Swart (DA) said that the money made available for RHIG did not meet the serious problems in the area, both in terms of the amount allocated, and the fact that it was going directly to the municipalities, who were not capable of making proper implementation. He recommended that the Committee could not approve the grant as a schedule 5 grant.

Ms R Mashigo (ANC) said that the discussion on RHIG was critical as it dealt with sanitation in rural areas and the question was whether the new schedule 5 listing would result in improvements, given the fact that there had clearly been fiscal dumping when it was a Schedule 7 grant.

Ms Dambuza sought clarification on what was meant by the National Treasury when it said that the plan before Parliament on the Division of Revenue Bill was still a proposal.?

The Chairperson said that the DHS and National Treasury had to be mindful that there was no time to deal with the issues. Committee Members had already sacrificed their time to attend the meeting on a Monday instead doing work in their constituencies. He added that there was under spending of RHIG even after it had been reduced.

Mr Zulu responded that it was a bit of a challenge to reflect on the process and the proposal that was in front of the Committee. The reason for the proposal that the relevant departments on sanitation should meet was to try to formulate something as a feedback to the mandate that the Committee had given to the DHS. The mandate would translate into a proposal, that would then get into the fiscus. At the time that he had met with NT, he did not know a proposal had already been put forward.

The Chairperson asked him specifically if NT had come up with the proposal on the grant.

Mr Zulu confirmed that this was correct. The next step after meeting with the DG for NT was to consult other affected sector departments, in particular Water Affairs and the Department of Cooperative Governance and Traditional Affairs (CoGTA) in determining how to move forward with RHIG, how to manage it, and how to ensure that the mechanics of implementation and protocol were in place, and that there was no conflict. The status quo would remain until the proposal had been dealt with by the sector departments and a report given to the Committee. The process was still unfolding and so the current proposal on RHIG was coming directly from the NT, not necessarily in consultation with DHS.

The National Treasury representative then explained that the meeting of the two DGs was on the main issue of sanitation. The function was transferred, but the legislative context in which sanitation was to be provided had not properly shifted to the DHS. There was a functional debate between the two DGs on whether the complete legislative role of sanitation needed to be shifted into DHS, and the relevant legislation written to do this. That meeting was therefore not about scheduling of RHIG, but rather about the bigger aspects of sanitation. The NT’s proposal at the moment was the money should go where the function was.

The Chairperson said that the Committee was interested in service delivery extending to people on the ground. It was immaterial who had to do the functions. Mvula Trust and IDT had not successfully fulfilled this role in the last year, and this failure had to be addressed. Municipalities were being blamed for not performing, but the blame was not being apportioned rightly.

Ms Yengeni proposed a meeting on 12 March 2013, where the two DGs should appear before the Committee to clarify what the “proposal” was. The grant was not working because the other stakeholders were not on board.

Mr Ramatlakane wanted to know from the DG if it was the first time that he was learning of the holding arrangement that was proposed by the NT after the tabling of the Budget by the Minister.

Mr G Snell (ANC) said that under the Division of Revenue, one of the responsibilities of DHS under RHIG was to continuously monitor the implementation and provide support for municipalities. He wondered if the DHS was in a position to ensure that support was given to the municipalities to be able to ensure that the grant was spent.

Mr Zulu said that the allocation letter was received at the end of November 2012. There was no consultative process prior to the receipt of the allocation letter, only after. He added that DHS was not involved in the decision of the NT with regard to the grant. NT had its own methodology in analysing how a grant was spent and it was from that analysis that a proposal would be made. DHS had reflected on the challenges after it had received the allocation letter. Other than monitoring the RHIG, it would not get involved with accountability and implementation as that was done directly by the municipalities. DHS could only monitor the implementation with the changes proposed by NT.

The Chairperson said that municipalities were being burdened with the grant in the absence of capacity, which was the reason for the under spending, and that underspending was the reason for NT withholding funds.

Mr Zulu said that the allocation letter had been discussed at an executive level and that the DHS was in the process of writing to NT to inform it of the challenges in managing the grant.

Mr Wallis said that the RHIG grant was in the region of R479 million and there was a failure by Mvula Trust and IDT in implementing it. Although delivery had increased, they were still not performing as expected. Following an agreement with the Portfolio Committee on Human Settlements, six additional contractors were appointed at the beginning of the year to take over some of the work taken away from the two trusts, mostly in the Eastern Cape, Mpumalanga and North West and this should result in an increase in delivery. He added, however, that the allocated budget would not be spent this year due to the on-going problems being experienced the Mvula Trust and IDT. The budget had been reduced, for 2013/14, to R106 million as it would be an easier amount to manage. On the other hand, if the grant remained as a schedule 5 grant, each municipality was expected to receive about R4 million, translating into R9 000 to erect each ventilated improved pit latrine (VIP) which would further translate into roughly 450 VIPs. This implied that there would be a requirement to build, in each of the 25 municipalities, 450 VIPs with the budget available. The recommendation that RHIG should be a schedule 5 grant would allow the DHS to support municipalities in making business plans to spend the R4 million, and also to support their procurement systems for delivery of the units. However, if the Committee were to decide that the grant should remain as a schedule 7 grant, DHS would still be able to manage the grant as a Department, taking into account the size of the budget. He reiterated that there would not be total reliance on IDT and Mvula.

The Chairperson made a ruling that the RHIG grant should remain as a schedule 7 grant and that DHS should build capacity for municipalities to allow for direct transfer of the funds to them.

The Chairperson added that the South African Local Government Association (SALGA) should also be involved in the discussions with the municipalities on this aspect. DHS, NT and SALGA should meet and discuss how the expenditure of RHIG was going to be improved, and a report should be drawn and tabled to this Committee.

The NT clarified that grants in kind were now classified under schedule 6B and no longer fell under schedule 7, and asked that the Committee minutes be corrected to reflect this. The new Schedule 7 dealt with funds designated for disaster.

The Chairperson asked if the municipalities and metros were ready for level 3 accreditation.

Mr Swart also wanted to know the status of the accreditation, considering that 18 municipalities had applied for accreditation and only six had been approved.

Mr Chainee said that DHS adopted an accreditation framework and, in terms of the framework, the DHS had requested the relevant provinces to submit the names of municipalities whom they believed could be assessed for accreditation, which was duly done by the provinces. The target set by the DHS for the end of 2014 was accreditation of 27 municipalities. The DHS had since conducted 22 assessments and recommendations had been made to the Provincial MECs to accredit relevant municipalities. In relation to the metropolitan municipalities, Buffalo City and Mangaung were excluded because their assessments had been done and sent to the provinces. The recommendation was that six metropolitan municipalities be accredited with level 2 accreditation. These processes had commenced and accreditation completed for level 2. Full assignment of housing functions for the six metros would only be completed in July.

The Eastern Cape was supporting the accreditation of Nelson Mandela to level 3 for full housing function assignment. The challenges faced there were not linked to administration. Buffalo City had applied for level 2, but the general opinion was that it lacked capacity and was not ready for accreditation.

The Chairperson asked for clarification on the criteria used for assessment of the municipalities.

Mr Swart asked if any money was given to municipalities to help them in capacity building.

Mr Chainee responded that a comprehensive assessment on government, project management, and administrative abilities would normally be carried out with an independent panel taking audit reports. The assessment was then sent to the municipalities and provinces for comments. A recommendation following the assessment was made from the Minister to the provincial MECs.

The representative from the Western Cape DHS said that the City of Cape Town was more than ready for level 3 accreditation. There had been an allocation of R10 million to help in the building of capacity and most of the metros had the front office capacity, which was more about construction management and engineering services. There was a need to enhance the back office capacity, which was mostly about administration, so that there would be a clear list of projects ready to go. Absence of full spending by a municipality was not reflection of poor capacity, but could rather be a reflection of poor planning or poor projects.

Ms A Mfulo (ANC) said that metros and municipalities were giving out one roomed houses with no yards, and that the planning for such dwellings fell short. There was a need to change the way that planning for black housing was done, and she cited differences in houses constructed in different areas. Issues of disability had to be addressed in accreditation.

DHS noted that the general consensus was that metros were ready for accreditation. Some metros had resolved that no one roomed houses would be built again. eThekwini was also moving towards the process of a level 3 accreditation.

The Chairperson proposed to the Committee that that the Division of Revenue Bill be passed with the current arrangement in place, since it was not going to affect the amounts. However, a meeting would be held in July with DHS to give an update on accreditation. The Standing Committee was going to monitor the implementation and use of the resources.

He then said that there was no longer a need for a meeting on 12 March 2013. The two DGs of DHS and NT must meet and report back to the Committee. RHIG should remain as a schedule 6B grant until the Committee was satisfied that there was improvement in its handling.